With or without you: the evolution of Australia’s energy market

07 May 2015

Speech by Chairman John Pierce at Energy Network Association Forum 'Energy Transformed' 2015

With or without you: the evolution of Australia’s energy market

7 May 2015

I’d like to start by acknowledging the traditional owners of the land on which we meet and pay my respects to their elders, both past and present.

Can I also thank John Bradley, CEO of the Energy Networks Association for inviting me to speak with you today.

Can I also acknowledge:

Rosemary Sinclair, CEO of newly founded Energy Consumers Australia;
Michelle Groves, CEO of the Australian Energy Regulator;
CEOs of industry here today – too many to mention individually which reflects very well on the organisation of this event.

We are now three years through a market-wide energy reform program – Power of Choice – which at its heart is about facilitating the development of a more resilient, responsive market for energy services.

One that can develop and adjust to whatever the future brings, in terms of factors such as: demand patterns and levels; consumer preferences and expectations for value added services, and reliability and quality of supply; changes in technology, such as in metering, load control, electric vehicles, distributed generation and storage; and the relative input prices of capital, labour and fuel sources.

2 One where price levels, structures and risk allocation from the consumer through to energy source – which are the links that tie the different elements of the service supply chain together, that impact on the long term interests of consumers and influence their behaviour – are consistent with one and other.

One that enables and rewards the sector for making a positive contribution to the economy’s long term growth potential via innovation and productivity growth.

It is important to keep in mind that structural adjustments implied by the sort of factors referred to above, far from being exceptional events, are the normal pattern underpinning economic growth. In fact it is an illusion to pursue the long term interest of consumers and at the same time pretend to keep the structure of our system of production and the businesses that make it up, stationary.

Of course the rule changes flowing from the Power of Choice review won’t, by themselves, lead to a resilient, responsive energy services market.

All of our market development reviews, advice to the COAG Council for Energy and rule change processes need to be aligned to this strategic intent.

Nor of course is the AEMC’s remit the sole influence on how the market evolves and its ability to respond to these drivers of structural adjustment in a manner consistent with the National Electricity Objective.

How you as individual businesses decide to respond, the strategies you pursue and priorities you set are obviously a critical determining factor. The title you have given to today’s discussions reveals you are well aware of this.

On a broader level you have probably heard me say before that the outcomes experienced by consumers – the ability of the market to meet this objective – is a function of three variables.

At this point I should apologise for my somewhat mathematical bent – I recently pointed out to a learner driver how overtaking involved using the calculus he was learning at school. I’m not sure that he found that particularly helpful.

But in this case the three variables impacting on consumers are:

what is happening in the competitive generation and retail sectors,
what is happening in the regulated network sector; and
the means by which – the tools and instruments – that governments choose to intervene in the market in order to achieve their quite legitimate policy objectives in areas such as vulnerable consumers, emission levels and land use planning, which are usually developed outside of energy portfolios.

Government objectives in these areas are of course a given, however what we can and should do is point out how to design policy instruments that achieve these objectives that are also compatible with how the energy market operates.

But back to Power of Choice - these are important reforms.

And much of the heavy lifting involved in the Power of Choice reform program addresses issues with regulation of electricity networks – how distribution network prices are structured and the competitive framework for metering and metering services for example.

The latter being an example of how technology can open up opportunities for consumers, rather than regulators, to decide for themselves what services are of value to them, and in the process re-define what parts of the supply chain sit within the competitive as against the regulated sectors.

So I want to thank you all – including the Energy Networks Association – for helping us lay the foundations for lasting energy market reform for the road ahead.

In any challenging reform program it is worth reminding ourselves from time to time why we started down this path in the first place.

It is true that efficient markets are characterised by effective participation of both the supply and demand sides of the equation.

And clearly that is something the Commission, industry, consumer groups and governments have an interest in encouraging.

But the Power of Choice report was really a response to changes in the key drivers of how the sector develops that was started once the decision was made to establish the NEM as part of the overall Competition Policy reform package.

When I, and I suspect many of you, started working in this sector the main driver was the generation sector. That’s where all the action was. With the establishment of the NEM, and retail competition, that focus shifted to the retail sector and now – with or without us – the key driver of development is the consumer.

So how do the ‘bits’ of the Power of Choice reform fit together?

Connected, well thought through reform, often gets unpacked during implementation into its constituent parts and scattered to the point where you need an Allen key and Ikea instructions to get it back together.

The Power of Choice reforms are designed to fit together.

They will deliver better outcomes for consumers and set us up for long-term market efficiency and stability, but only if we stay the course on the key aspects of the reform package.

We can’t pick and choose the bits we like and bits we don’t without compromising the move to a consumer driven energy market, where consumer choice is what drives the way the market evolves.

The first piece of the puzzle is getting effective price signals to the consumer. That’s where the distribution network pricing rule change comes in – which will come into effect from 1 July 2017.

From that date, network prices will better reflect the cost of providing network services to individual consumers.

Even if the total costs and revenues of network services are at efficient levels, retailers and consumers cannot be expected to make efficient choices unless these revenues are recovered via price structures that better reflect the cost consequences for networks of their individual decisions.

This will allow consumers to make more informed choices – to see and access value in those choices – and that gives them a reason to participate in the market.

All energy ministers indicated their full support for the network pricing reforms in the most recent COAG Energy Council meeting in December last year:

“The Council supports tariff reform as an essential next step in this process as a means of providing better price signals to consumers and notes that new Distribution Network Pricing Arrangements will enable distribution businesses to set prices that reflect the efficient costs of providing network services to each consumer. This will allow consumers to make informed decisions about their electricity usage and help to deliver better signals for efficient investment in distribution network capacity.” - COAG Energy Council, December Communique

But it’s no good consumers having a reason to participate, if you don’t have the means to participate.

And to participate consumers need information and they need tools. Clearly competition in retail markets plays an important role here, as does government in supporting information campaigns.

So the second piece of the puzzle is improved consumer access to information about their energy consumption via a rule change that went through in November.

It allowed customers to obtain their electricity consumption data from their distributor as well as their retailer.

It allows other parties authorised by customers to request access to electricity consumption data from retailers and distributors.

And it provides minimum requirements for the format, time frames and costs involved when a customer requests their consumption data.

As well as information, consumers need tools, and that’s where the third piece of the puzzle - metering reform – is important.

And the metering work is really a ‘set-of-reforms’ – rule changes – which provide the necessary conditions for a competitive energy services market to develop.

These include a rule change to promote competition in metering and related services; an open access and common communication standards framework for smart meters; and arrangements to allow multiple trading relationships at the consumer’s connection point.

The competition in metering rule change really is the “key” to unlocking the full value and benefit of consumer participation in energy markets.

Like a mobile phone or a pay TV box, advanced meters are currently an important piece of the physical infrastructure that enables consumers to use a service they value.

It is a tool that can help consumers monitor, manage and adjust their electricity consumption and, importantly, capture the value of doing so, if they so choose. Opening up the metering space to competition will allow consumers to benefit from a wider range of energy services and demand-side products.

Tools to respond to time-of-use pricing, off-peak charging of electric vehicles, faster retailer switching and more efficient notification of system faults to network operators.

Our draft determination, as most of you will be aware, is out there for public consultation and we had a good discussion at the public forum here in Sydney last week.

The draft determination makes it clear we intend a market led approach, meaning investment in metering services will be driven by consumers choosing products and services they value at a price they are willing to pay.

Again, this is a reform which has been endorsed by energy ministers at the December COAG Energy Council meeting:

“The Council supports the push for competitive market-led rollouts of smart meters and the delivery of tangible benefits to consumers from new metering technology.” - COAG Energy Council, December Communique

The metering reforms mean investment, innovation and technological development will be responding to consumer preferences, rather than a regulator’s preferences.

Meters, of course, are not the only tool consumers need for competition to thrive.

Consumers also need tools to help them shop around for the best deal. Just as importantly, they need to know about the tools available to them.

And while there are useful comparison sites available to consumers, our research, including that conducted for our annual Retail Competition Review, clearly shows that most consumers don’t know about them.

Our last survey found that only 1 per cent of consumers could identify their jurisdiction’s independent comparison website unprompted. That went up to 29 per cent in Victoria when prompted (lower in other states) but that is still a very low number.

That’s why we’ve recommended a range of initiatives to increase consumer awareness of the choices available to them.

These included improvements to comparison websites and tools, targeted information campaigns to consumers with difficulty accessing online information such as those who do not speak English, and a mass market media campaign.

Giving consumers the tools, information and clear price signals, means consumer choice is what will drive market development for energy and energy related services.

This is a direction consumers were already headed in – with or without us – propelled by technological change.

The different parts of the Power of Choice reform program will work together to support that change. But we must stay the course on all aspects of the reform program, because they are very much integrated reforms which rely on each other to succeed.

Metering is not the only technological issue the AEMC is looking at which has the potential to reshape the energy market landscape.

In collaboration with the CSIRO, we’ve also started a new project looking at the regulatory implications of storage technology.

Advances in technology and decreasing costs mean storage technologies have the potential to affect every part of the electricity supply chain.

Distributed storage systems may offer significant benefits to consumers with intermittent energy sources, such as the 1.4 million Australian households with rooftop solar PV, by allowing them to better match their generation to their usage needs.

Large-scale storage systems may be used by network businesses to reduce congestion, smooth network peaks, mitigate outages or provide network support in remote areas – all of which potentially reduce the need for spending on network infrastructure, thereby reducing the cost of network services for consumers.

Storage systems connected to power stations could allow generators to better manage variations in wholesale prices between times of high and low demand, or better integrate variable generation resources like large-scale wind.

So we are looking at how different storage technologies may be utilised across the electricity supply chain; the implications for electricity consumption; and how the legislative and regulatory framework may need to respond.

The project is a little new, so we haven’t outlined the details of stakeholder engagement on this project, but that will happen in the coming months and I’m sure many of you will be interested in that.

Now, some would ask the question: does this mean you’re expecting storage technology to mature in the short term?

We don’t take a view on that. For us, the work we’re doing: looking at metering technologies, storage technologies and the regulatory implications of technology and market change in general is about understanding what is on the horizon so that the regulatory framework is flexible and resilient enough to respond to change, whatever comes.

We don’t know what types of technology are going to emerge in the future.

What we do know is that consumers will dictate that, by doing what consumers do in a workably competitive market.

The consumer driven transformation of energy markets will move ahead with us or without us.

Government, regulators and retailers, generators and networks alike have to make choices about whether they’ll embrace the evolution of the market.

Our view is that it is better to be ahead of change than behind it – regulators have found out the hard way what it means to be unprepared.

It’s now up to networks to respond to this evolution and to the new regulatory arrangements. The way you have structured your discussions today is evidence that has already happened.

Again, I want to thank you all – including the ENA – for coming with us on this path.

It is not an easy journey – and I dare say there’ll continue to be a fruitful and robust exchange of ideas.

But no structural change happens easily; and good, lasting reform only happens when there is that free and frank exchange of ideas via robust consultation and engagement.

I look forward to continuing that engagement with all of you.

And thank you again to the Energy Networks Association for inviting me to speak today.

ENDS

Energy market development at a crossroads

10 November 2014

COMMENTS BY CHAIRMAN JOHN PIERCE AT THE BUSINESS COUNCIL OF AUSTRALIA’S FORUM: AUSTRALIA’S ENERGY ADVANTAGES

Energy market development at a crossroads

10 November 2014

With declining growth in demand in the electricity sector, the National Electricity Market faces new challenges to promote efficient investment in, and efficient operation and use of, electricity services for the long term interest of consumers. At the same time, the Governments and market operators in Western Australia are considering the appropriate design of their energy markets in the context of challenges, partly caused by the use of a ‘capacity market’ model. The following comments by John Pierce at the BCA’s forum to launch their paper – Australia’s Energy Advantages – follow his recent speech titled ‘A consumer driven market’ made at the 2014 NEM Future Forum.

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Check against delivery The price and reliability outcomes we experience in the electricity sector are a function of three things: what’s happening in the competitive generation and retail sectors, what’s happening in the regulated network sector and policy decisions, often from environment or land use planning portfolios that have a significant impact on how the market operates.

It can get complicated at times when there is an issue to diagnose, which of these three areas is its source. It can be even harder to get them all to move in a consistent direction, which raises interesting institutional design and accountability questions.

But it seems to me we are at an intersection, or a crossroads, in terms of energy market development, where depending on the decisions we make collectively – government, market institutions, industry and consumer groups – we will end up going down one of two paths.

The first path is one where the future development of the sector – the major investment decisions and disinvestment decisions – is effectively made by government.

This is essentially where we were before we had a National Electricity Market.

It is where the UK is now – private sector investment does not occur unless it is underpinned by a regulation, a government contract, or some other form of subsidy from the government.

Of course, this calls into question whether you’ve actually got a market at all if major investment decisions only happen if the government is there to direct and support them.

And a key characteristic of that sort of outcome is that the risks associated with investment and disinvestment decisions and the risks with whether such things as your demand projections are accurate, effectively land at the feet of consumers.

The alternative path, again depending on how we respond to issues facing the sector, is that we continue to develop a market which is essentially being driven by:

Consumers doing what consumers do – making consumption decisions;
Where investment risk and demand risk are managed by businesses operating in a workably competitive market;
Where the networks sector operates within a regulatory framework that people can have confidence in and where there is a closer relationship between the prices charged for network services for individual consumers and the efficient cost of providing those services (Read about new rules proposed for distribution cost-reflective pricing); and
Where the investments used to achieve government’s policy objectives are compatible with the way the energy market works and where risk allocation is consistent with what makes our market ‘a market’ in the first place.

The decisions and responses to the issues we face will either take us inexorably down one path, or the other.

ENDS

A consumer driven market

19 September 2014

SPEECH BY COMMISSIONER JOHN PIERCE AT 2014 NEM FUTURE FORUM

A consumer driven market: the next chapter in a national productivity improvement story

19 September 2014

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Thank you for being here today to discuss the future of the National Electricity Market.

Before we begin, I’d like to acknowledge the traditional owners of the land on which we meet and pay my respects to their elders both past and present. I’d also like to acknowledge:

Keith Orchison, our Chair today, and
All our other speakers.

I’ve been asked to speak about where the national energy market is now, and where it’s headed in the future.

As a Commission, we are in a sense quite agnostic about the future. We are not in the business of making forecasts of demand, prices, relative costs and technologies.

In performing our role, we don’t need to, because ultimately it will be consumers doing what consumers do – making consumption decisions based on the price and service options available to them – that will drive the way the sector develops.

But where we are now?

The National Electricity Market has been on a fairly consistent reform path over the past 25 years or so.

I don’t intend to give a history lesson today, but briefly: the reform of the energy sector was part of a major period of economic reform kicked off in the 80s, which included reforming a set of capital intensive utility services such as energy, communications, transport and water, whose performance was not supporting long term economic growth to the extent that it could.

These assets were state owned, centrally organised and monopolistic.

Since then, the story in our sector has been one of separating policy and regulatory functions from industry; industry restructuring; and bringing competition to the sector.

A key characteristic of the old industry structure – and one that makes what we have today in the competitive generation and retail sectors different – is where demand and investment risks fall and the way they are managed.

It is in fact how these risks are allocated between consumers and businesses that determines whether ‘what we have’ deserves to be called a market at all.

Numerous reports and reviews dating back to the 1986 McDonell and 1988 Curran inquiries in NSW, through to the Western Australian Economic Regulatory Authorities’ report on that State’s wholesale electricity market published last year, show that wherever you have a central authority determining how the sector is to develop – how much investment is to occur – how much capacity is to be built or procured based on fallible forecasts of the future – the costs of getting these decisions wrong rests with consumers.

For the future of the sector to be driven by consumers deciding what is of value to them, one of the prerequisites is that demand and investment risks are managed by businesses, operating in a workably competitive market.

You don’t need to believe – though you may choose to – that people making investment decisions based on forecasts of the future working within an AGL or Origin or Alinta, are any better at foretelling the future than people – possibly the same people – working within a central authority. The point is the risk allocation, the way it’s managed and the associated incentives are different.

We have come a long way but there is, of course, work to be done.

We have clearly commenced a new stage where the NEM’s development is driven by consumers making choices about the way they source and use energy.

The measures set out in the Commission’s Power of Choice reform package, and the reviews of retail competition, which included proposals to address the way distribution tariffs are structured that are now at the Draft Rule stage, are about facilitating consumers move from the “back seat” to the “driver’s seat” – giving them better information and tools to make informed choices about their energy consumption.

A key question though is will they find it a comfortable seat and a pleasant experience?

Consumers – that is, people – need to be as comfortable making choices about energy as they are picking items off the supermarket shelf.

When you think about the process of choosing products at a supermarket, a consumer is able to scan a shelf, run their eye past the Tim Tams, the Iced Vovos, the Mint Slices (a personal favourite), the Scotch Fingers, and all the while weighing up taste, quality, price, your attempt to be virtuous with respect to diet. And pretty quickly narrowing it down to a couple of options – the Iced Vovos and the Mint Slices – and buy both.

Granted energy is a little more complicated than that, but fundamentally we want to get to a place where consumers are as comfortable making decisions about energy as they are other products and services, where competition and choice is taken for granted.

And to do that people need information; they need tools; they need to be engaged; they need a reason to be engaged; and they need the price they pay for energy to reflect the cost of supplying them, as individuals.

Together, the AEMC’s Power of Choice reforms and the lessons from our reviews of retail competition are key to achieving these objectives.

One of the Power of Choice building blocks is the distribution network pricing rule change, which aims to have network prices paid by individual consumers better reflect the cost of providing network services to them.

Currently, even if the total costs of network services is at efficient levels, many individual consumers pay more than the costs caused by their usage, because of the way network prices are structured. Other consumers, in particular those that use a greater proportion of their energy at peak times, pay less than the costs caused by their usage.

Existing network price structures over-recover for off-peak use of the network and under-recover for peak use. In the draft rule determination, we include a number of case studies to explain this.

By way of example a consumer using an average size north facing solar PV system will save themselves about $200 a year in network charges compared with a similar consumer without solar.

Because most of the solar energy is generated at non-peak times, it reduces the network’s costs by $80, leaving other consumers to make up the $120 shortfall through higher charges.

The same consumer could reduce network costs considerably and align with the savings they receive, by facing their panels west, generating more energy 4 at peak times when it is most needed. That is, less energy in total, but more when it is most valued.

Under the existing network pricing arrangements, the consumer has no incentive to do so as they benefit more by generating more total energy throughout the day.

Equally, a consumer using a large 5kW air-conditioner in peak times will cause about $1,000 a year in additional network costs compared with a similar consumer without an air-conditioner.

But the consumer with the air-conditioner pays about an extra $300 under the most common network prices. The remaining $700 is recovered from all other consumers through higher network charges.

In both examples, some consumers are paying more than it costs to provide services to them, and others less.

The objective of the changes set out in our recent Draft Determination is that network prices paid by individual consumers better reflect the cost of providing network services to them, as individuals.

This will allow consumers to make more informed choices about what energy services they value.

It will also give consumers the information they need to decide what technologies might work best for them to manage their usage, and help reduce their energy charges.

From a market and overall system point of view, it will mean consumers' choices are the driving force behind market development and investment and provide the conditions for a more effective and competitive energy market.

Of course it’s one thing to create the market conditions for choice, but consumers also need the tools to respond to market price signals.

Another important Power of Choice building block is creating opportunities for a competitive energy services market.

It goes without saying that consumers use of technology will be a huge part of the process in driving change and market development in coming years.

We don’t necessarily know which technologies or how they will be used, which is precisely why the Commission’s policy work is agnostic about technological development, but we know they will drive innovation and change and the system must be flexible enough to respond to that change.

The rule change to promote competition in metering and related services; the open access and common communications standards framework for smart meters; arrangements to allow multiple trading relationships at the consumer’s connection point; and measures to improve the switching process – these reforms will all work together to help the energy services market evolve in a way that supports consumer choice.

So how might we predict the future for the National Energy Market?

My advice is to follow the consumer.

They’re in the driving seat and technology is propelling them very quickly in relatively unpredictable ways.

Increasingly, they’re expecting engagement. Not only to be consulted on industry and regulatory activity but to actively participate in the energy market.

So in terms of how the Australian Energy Market Commission sees the energy market of the future, we don’t plan to bet on any single possible future.

Instead, we want a system which is flexible enough to respond to the increasingly sophisticated and diverse demands of consumers, which allows their choices and preferences to drive market development.

But, we won’t get there if we start fiddling with the way energy is bought and sold (the means of exchange) or if there are policy interventions in the market that undermine its operation and the ability of price to reflect underlying demand and supply conditions.

So let’s talk about capacity (so called) “markets”.

There has been increased chatter in recent times suggesting that there may be a case for a fundamental redesign of the wholesale energy market – a move to a capacity (so called) “market”.

This, at least in part, appears to be motivated by the current disconnect between wholesale and retail prices and generation oversupply.

The WA energy market is a good local example of the problem with capacity markets and the WA Government is currently grappling with what to do about the problems they cause – predominantly higher risk and generally higher prices for consumers.

The WEM is typical of other capacity markets in that it relies on a central authority to predict and procure generation capacity.

If your system requires an omnipresent, all knowing being – let’s call him or her ‘god’ – to understand a system completely, have perfect powers of prediction and to know what capacity should be set to match future demand, the only thing you can perfectly predict is that god will be wrong.

In reality, typically in capacity markets our omnipresent, perfect bureaucrat will contract or regulate for too much supply, because that is the rational thing to do given the incentives god faces.

And when he or she gets it wrong and over contracts, the consumer pays.

That is certainly the case in WA. It was the case in the “olden days” of the state-based utilities. The consequence of this type of structure is that demand risks fall on consumers.

We’ve well and truly moved away from this era in the NEM – indeed as I’ve spent most of today’s speech talking about, we are headed in exactly the opposite direction.

So the message to those intending to fiddle with the development of a consumer driven energy market and revert to the risk allocation of the old days is a simple one – you are heading in the wrong direction.

Part of the underlying issue here of course, is the impact of bringing together the way the energy market works with the particular way the Renewable Energy Target is designed.

In effect, because the RET sets a specific GWh target, its risk allocation is the same as a capacity (so called) “market”.

These issues of the interface between the two have always been there, but have only become more evident with the drop off in demand growth.

Governments legitimately have a range of policy objectives in addition to the traditional energy policy objectives.

That’s why we have elected governments to specify policy objectives. But in achieving these different objectives we must be careful, wherever possible, not to jeopardise the achievement of one to the benefit of another.

When contemplating the effective integration of energy and environmental policy, it is important to design a mechanism to achieve an emissions reduction objective that preserves the means of exchange and allocation of risk in energy markets. Because these are the characteristics that make the energy market, a “market” in the first place.

For the NEM to be an effective market, it must be able to respond to changes in demand driven by consumer preferences, changes in technology and other factors, like relative prices, which cannot necessarily be predicted.

For a policy to be sustainable there needs to be a reasonable opportunity to adapt to material changes in market conditions, in a consistent manner.

Robust policy positions should not be predicated on one particular view of the future.

For environmental policy like the RET to be sustainable, investors also need a level of confidence that policy objectives can be met and are sufficiently robust to adjust to changes in market conditions.

It is due to the divergence in the risk allocation mechanisms in the energy market on the one hand, and the current RET design on the other, that we proposed, in our submission to the RET review, moving the RET to a floating 20 per cent target in 2020, as opposed to a fixed GWh target.

The important point is not even the level at which the target is set – let’s call the target “X” – it’s that it is “X per cent” of whatever demand happens to be.

This would shift the allocation of demand risk away from consumers and more appropriately share it amongst investors – renewable and thermal – who are better placed to manage such risk and profit from efficient decisions.

While consumers are going to drive much of the change we experience in the energy market in the coming years through their demands and preferences, we also have to make sure the benefits flow to all consumers.

And we must ensure some consumers don’t get lost in the change and the increasing diversification of the sector. This involves a massive communications challenge.

In May this year, the Commission held its first strategic priorities forum with consumer representatives in order to deepen our relationships with consumers and their advocates as we consider the agenda ahead of us.

Consumer engagement was right at the top of the list of issues we are dealing with, particularly ensuring they having full information about contracts, offers and changes related to new flexible pricing structures.

Equally significant to consumer groups was the impact of energy prices, along with the importance of consumer protections, particularly those that support more vulnerable and low income consumers.

So we need to be able to respond to those concerns about ensuring all consumers benefit from greater competition, and respond to concerns about the necessary consumer protections needed into the future.

Many consumers need the information and confidence to become more engaged in shopping for energy. Our Consumer Engagement Blueprint for the review of competition in NSW energy retail markets recommended strategies to achieve this, including:

providing information to consumers that uses different channels to target specific consumer segments as well as the broader community,
refinements to existing comparison tools so that consumers have a trusted source of advice that allows ‘apples for apples’ comparisons, many of which are already being considered by the AER, and
providing additional support to consumers that need it.

And many of these reforms are being rolled out with some good results.

For example, it was encouraging to see in our recent report on competition in retail electricity and gas markets that 90 per cent of all consumers were aware they could choose their energy company, up to 40 per cent had actively investigated options, and up to 28 per cent had actually switched during 2013.

Consumers are shopping around for better gas and electricity deals more often than they are switching insurance companies, or phone and internet providers.

New retailers are entering markets and winning customers with discounts and other incentives, with conservative estimates of savings from $60 to $240 or more a year, depending on where they live and how much electricity they use.

The other aspect of the communications challenge is to understand that there are an increasing number of already engaged consumers – energy literate consumers – who want an entirely different energy product compared with what has been provided to them in the past.

So as we embrace the challenge of responding to diverse needs – from highly energy literate consumers, to more traditional consumers, to vulnerable consumers – it will be important to have a market that is flexible and able to respond to diversity and range of possible future scenarios.

In the years to come, the structure of the energy sector may be quite different to the one we see today.

The increased interest of new technology providers in our sector has the potential to reshape the way we think of an energy services provider.

The increased use of electric cars, the uptake of home energy management systems and technologies, and other possible demand game changers, which may work in completely opposite directions.

All this has the potential to change the face of the energy sector.

The focus of the AEMC – the agnostic AEMC – is to care deeply about the future and develop the NEM into a market that is flexible and able to respond to whatever the future holds.

Thank you for listening and enjoy what promises to be a fascinating day’s discussion.

ENDS

A consumer driven market

19 September 2014

SPEECH BY COMMISSIONER JOHN PIERCE AT 2014 NEM FUTURE FORUM

A consumer driven market: the next chapter in a national productivity improvement story

19 September 2014

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Thank you for being here today to discuss the future of the National Electricity Market.

Before we begin, I’d like to acknowledge the traditional owners of the land on which we meet and pay my respects to their elders both past and present. I’d also like to acknowledge:

Keith Orchison, our Chair today, and
All our other speakers.